Pepper Spray Saves Santa!

Did Black Friday save the season? Beware the retail hype.

By Barry Ritholtz, The Washington Post

Saturday, December 3, 10:20 PM

We begin with a quick review of the retail sector in 2011: Sales improved versus 2010 by 3 to 4 percent. We use year-over-year comparisons because of the highly seasonal nature of retail sales. In 2010, sales were fairly soft, in part because much of the nation experienced severe weather. In the business, we call those “easy comps” – a low comparable data point that should be easy to beat.

Based on the first 10 months of the year, holiday shopping in 2011 should see similar improvements. Consistent with the year-over-year retail numbers, expect sales gains of 3 to 4 percent. Even so, these numbers come with caveats.

Prices in some products have risen – in some cases, substantially. The three most noteworthy are gasoline (up 15 percent), food (5 percent) and cotton (a whopping 230 percent).

The price pressures on these – all consumer staples – are reflected in the total retail sales data. When we look at total sales, we get a sense of how much the nation is spending – but, because of inflation, not how many goods people bought. Based on that data, we can conclude that a decent amount of the total dollar gains in retail sales are not improvements, but rather price inflation.

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The reports released with Black Friday and the holiday weekend are from trade groups representing retailers. (They do not hide this.) Each year, they make wildly optimistic projections, which are repeated in the media like clockwork. By the time the actual data come in, the projections have been forgotten. By then, we learn that early reports were pure hokum, put out by trade groups to create a “positive shopping environment.”

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“Traffic and spending were up both online and in stores, reaching historic highs. According to the survey, a record 226 million shoppers visited stores and Web sites over Black Friday weekend, up from 212 million last year. Digging deep into their holiday budgets, the average holiday shopper spent $398.62 this weekend, up from $365.34 last year. Total spending reached an estimated $52.4 billion.”

That would suggest that retail sales climbed 16 percent. They did not. Surveys where people forecast their future spending are pretty much worthless. They are far too unreliable to base sales forecasts upon.

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How far off have these surveys been in the past? Enormously. In 2005, based on a survey on Black Friday and Saturday, the NRF forecast a 22 percent increase in holiday shopping gains for the Thanksgiving weekend. The results? Up just 1 percent.

The same foolishness resurfaced again in 2006, with an 18.9 percent sales increase forecast. Of course, the reality was nowhere near that, with sales gains below 5 percent. Incidentally, it is not just Shopmas: The back-to-school-season was another opportunity to repeat the error. And in 2007, just as the recession was getting underway, they forecast a 4 percent gain in sales. What happened? Sales at U.S. retailers “unexpectedly” dropped 0.4 percent in December 2007, the weakest holiday season since 2002. In 2008, given the broad scale of the economic collapse, what’s perhaps most surprising was the expectations for a 2.2 percent sales gain (sales fell 6 percent). In 2010, Black Friday weekend sales rise were estimated at 9.2 percent, and overall sales were forecast to rise in November and December 2010 by 11 percent. (They rose 5.5 percent.)

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So when those breathless retail sales surveys were released (this year), we had no idea as to whether, and by exactly how much, sales might climb. The most that could be accurately said was that more people appeared to be in stores on Black Friday 2011 than in 2010. Indeed, that can be explained in part by the unseasonably warm weather around the country; as well as the extended store hours (including midnight Thanksgiving Day).